Which Investments Do People Consider Safe?
I need to start this piece with the obligatory acknowledgement that there is no such thing as a safe investment. There are some that, history would suggest, are safer than others. And there are some that are considered stable under specific circumstances, or for particular purposes. But there is no such thing as an investment that is wholly, definitively safe. They all come with risk.
With that made clear though, I also think it’s worthwhile for people handling their own personal finance to know what people are referring to when they remark upon safe investments. It’s a phrase that’s always floating around, attached to this or that venture, and it’s something that can be worth paying attention to. Because even if “safe” is an inaccurate label by nature, the opportunities it’s usually attached to can be appealing to those looking for more conservative investment opportunities.
The following are some of the investment options that are often highlighted for these reasons.
Savings accounts aren’t exactly exciting, but they are still thought of by many as the very safest and most conservative of investment opportunities. However, it needs to be remembered that “investment” can be a relative term. As one piece on how much to put in a savings account puts it, these arrangements “don’t exactly earn you a huge return.” The average bank offers minimal if not negligible interest. Still, there can be very marginal growth over time, with little risk compared to other options.
Certificates of Deposit
A certificate of deposit is like a savings account that’s more geared toward earnings, and less toward long-term, emergency storage. The idea behind them is simple: You store a given amount of money in an account, and it matures over time with a greater interest rate than what you typically get in a savings account. The catch is that your CD arrangement will require that you leave the money in the account for a minimum amount of time.
In that sense, it should be noted that there are some financial risks associated with certificates of deposit. If you put more money away than you can afford to, and you need to withdraw it before the agreed-upon time period has elapsed, you’re out of luck. For smaller amounts though, or for those who are absolutely certain they won’t need early withdrawal, this can be a means of securing some financial growth at a fairly small risk.
We spoke to the benefits of mutual funds in a previous article about wealth management. To reiterate though, these are investment funds that consist of numerous participants’ capital, and which are managed by professionals. Here, we’re talking about real market investment, which means there’s always a chance of a fund crashing. Particularly in broader market crashes, even a well-managed mutual fund will be somewhat subject to general movements. However, mutual funds have a history of yielding more than savings accounts, which leads some to view them as reliable.
Gold is the only specific asset I’m mentioning here, and I’m doing so because it’s so often thought of as safe — or more specifically as a “safe haven.” This reputation is based on the fact that investors have historically turned to gold when markets have crashed, and have sometimes benefited from its relative stability at such times. The truth of the matter is that gold has its ups and downs, like any commodity. However, in a more long-term sense, it’s moving up more often than down, and it’s rarely subject to sudden, significant crashes.
An analysis of what drives the price of gold sheds light on why it’s a generally positive asset. It mentions “aggregate supply and demand” as the main drivers, and given that both are rather steady, there’s little reason for unexpected changes.
Spare Change Investment Tools
Spare change investment tools are fairly new, and they’re also not meant to be particularly ambitious. If you’re unfamiliar with the idea, these are apps that turn change into investments, essentially by rounding up your digital expenditures. So, for example, if you use a card to fill up gas and spend $35.50, an investment app can pull $0.50 and inject it into a portfolio, which is then run more or less automatically.
There is some customization involved, generally. You can see where your money is being invested, and you can choose how bold or conservative you want the portfolio to be. Either way, we’re talking about slow, gradual gains in the best of cases (unless you’re just making a lot of purchases, and pumping more of that rounded-up change into the app). In terms of relative safety though, these types of opportunities aren’t unlike mutual funds.
In case I didn’t make this completely clear above, the idea of an entirely safe investment remains a myth. Even the most stable and conservative of savings accounts can fail if the bank itself collapses. The opportunities above are among the ones sometimes grouped into that category though, which can be of interest for more conservative investors.